In order to achieve and maintain a strong brand identity and reputation, it is incumbent on a financial institution to attract high quality customers and to establish broad, long standing relationships with those customers. Such relationships, when appropriately managed, will deliver high value to the financial institution in terms of increased revenues and higher profit margins. To attain this objective, customer profitability must be measured, tracked, and utilized as a basis for customer focused initiatives.
However, customer level profitability can be complex to calculate, especially if the financial institution desires to account for every transactional cost associated with the relationship. While financial institutions are generally desirous to measure customer profitability within their retail sectors, few have achieved true customer level cost accounting.
Consequently, financial institutions do not take customer value into consideration in making credit decisions. Instead, such decisions are based on calculated risk levels and financial institution policy. As a result, high value and low value customers who are at the same risk level receive the same treatment. In some cases, the financial institution may be likely to turn away profitable business and potentially alienate some of its best customers.
There is a need for a method and system of measuring and utilizing customer value applying modern statistical modeling techniques to assess the current and future values of a specific customer relationship to a financial institution such as a bank and to use the assessed values to adjust credit decisions on a customer by customer basis in order to continually maximize profitability.
For example, the financial institution can assign higher credit limits to a customer whose value is assessed as high to improve customer attitude and utilization, stimulate further relationship expansion, and promote longer term loyalty.
Further, value assessment can be used in decision making across a variety of financial institution functions, such as marketing, servicing, and collection.
Moreover, the resulting customer treatment actions can be coordinated across financial institution functions so that the customer is treated consistently across all functions in accordance with the assessed value of the customer.